When you use a credit card, the main concern is ensuring you make your monthly payments on time. But did you know you can also overpay your credit card?
While sometimes this is due to a mistake, you may want to overpay it on purpose.
Read on to find out everything you need to know about overpaying your credit card on purpose.
What Does It Mean to Overpay Your Credit Card?
Overpaying your credit card simply refers to paying more money than you owe.
For example, your credit card statement arrives, and you owe $400. But instead of paying $400, you pay $500.
You have now overpaid your credit card, and it will show a balance of -$100. This essentially means your bank owes you $100.
As well as overpaying on purpose, you could overpay a balance in several other ways. For example, you might return an item you purchased or have a delayed transaction.
What Happens If I Overpay My Credit Card Balance?
If you overpay your credit card balance, whether by accident or on purpose, you don’t have to take any action.
Your balance goes negative, and when you next make a purchase on your credit card, the money will be taken from the negative balance.
For example, if your balance shows -$100 and you then purchase something for $50, your balance will go up to -$50. It will continue going up until it goes back to $0.
However, you may want to get the money back directly rather than spending it on your credit card. This would apply in a scenario where you wish to cancel your credit card.
In this case, contact your bank and ask them to send you the overpaid balance.
Can I Overpay My Credit Card to Increase the Limit?
When you overpay your credit card, you are not exactly increasing the limit. If your limit was $1,000 before, it will remain at $1,000 after.
However, in a way, it will give you a temporary increase.
If you have overpaid by $100, you now have $1,100 to spend on your card instead of $1,000.
You could put this to your advantage. For example, you may want to make a large purchase on your credit card, but your limit is not high enough.
In this case, you could overpay your balance by the extra amount you need, then make the purchase on your card.
Does an Overpaid Credit Card Affect Your Credit?
Overpaying your credit card does not affect your credit score. There is nothing wrong with overpaying your card; the only potential problem is that it may be inconvenient.
For example, if you overpay your card and want to get the money back to hold in cash, this could be frustrating.
FAQs
Your credit score will not be affected if you overpay your credit card.
There is nothing wrong with having a negative balance on a credit card. This means the bank owes you the money you have overpaid, and it does not affect your credit score.
You may be able to pay off one credit card with another by using a cash advance or a balance transfer.
Your limit is the maximum amount you can spend on your credit card. If you put more money on your credit card by overpaying your balance, this will temporarily allow you to spend more than your limit.
Related:
Hi Enoch,
Thank you for your excellent newsletters which are full of well-researched and useful information.
A question about over-paying your credit card:
How does the over-payment affect the monthly minimum and balance owing on the credit card statement if the statement was issued after the over-payment was posted but before the statement balance is due?
Does the over-payment count as a “payment” towards the balance owing, even if the over-payment is for goods returned?
Regards,
Paul.
@Paul: Yes, the over-payment will lower the balance owing, even if it resulted from goods being returned and the amount being credited back to you by the merchant (assuming I understand your question?).
I used to do that years ago when there was no any fee for cash advances and better rates for foreign exchange. Doing so, it saved on interest charges. That was very convenient when travelling abroad. Although, it may still be useful in some instances, it is not that cheap now with the added fees.
@Paul: If the statement is issued after an overpayment (or goods returned) then it has been taken into account for the balance due and the minimum payment. Only payments or returns posted AFTER the statement date (and before the due date, of course) will lower the due balance and possibly make it negative if it is an overpayment. Possibly, because any extra money will be credited against any new charges since the statement date.
Will I still get rewards points when I make an overpayment to make a large purchase?
@Denise: Yes, you will earn rewards on the amount that gets spent from the card.